With healthcare reform looming, drug costs skyrocketing and
pharmacy benefit managers trying to win customers in a consolidation flux, now's
the time to look at your PBM contracts for some potentially significant
savings.

By Kristen B. Frasch

Thursday, June 13, 2013

If
HR leaders and their benefits administrators are focusing on the bigger picture
of healthcare reform -- private exchanges, employer-sponsored healthcare plans,
full-time versus part-time worker classifications -- at the expense of what
they consider a smaller concern, their pharmacy-benefit-manager contract, they're
doing so at their own peril, experts say.

Now
is the time to dig it out, dust if off and benchmark it against the deals that
are currently being made in what Paul Burns calls "a buyer's market for
PBM pricing."

"With
many medications having double-digit price increases, and with the continued
consolidation among PBMs," there's never been a better
time for "aggressive PBM negotiations," says Burns, principal and
national pharmacy practice leader for New York-based Buck Consultants, a Xerox
Co. "Any PBM contract that is 18-to-24-months old should be reviewed for
pricing competitiveness as well as up-to-date contractual language."

With
all the ideas flying around in HR and benefit circles as ways to avoid cost
increases with the Affordable Care Act barreling toward reality, and with "all
the momentum out there right now in terms of private exchanges, employer groups
and so on," says Burns, "I'm telling clients, 'Don't forget the
basics; pay attention to the PBM-contract negotiation.' "

Continued
acquisitions in the PBM industry -- not just the big ones such as Express
Scripts/Medco and CVS/Caremark, but smaller ones too -- have increased the
pressure to "deliver growth to the street and win business" for these
new conglomerates, he says. "That means significant downward-pricing
pressure." Even health insurers' PBMs, such as Aetna's and Cigna's, he
says, are becoming "extremely price-competitive."

In
fact, says Burns, "in the last 18 months, I have seen an increase in this
downward-pricing pressure that I have never witnessed before. I'm seeing a deal
that's maybe two-and-a-half years old [go through a market comparison for the
identical company and contract and] come out 10 percent better. We've even had
a couple comparisons that were 13 percent and 14 percent better.

"It's
been quite surprising and should not be ignored by employers," he adds. "I
think they need to wake up. They may not be attracted to something as basic as
a PBM contract [in the midst of so many more crucial issues and looming costs
tied to healthcare reform], but they need to be."

"So
many HR executives are so overwhelmed with healthcare reform and what they're
going to do," says Dross, "that they're saying, 'Well, the pharmacy
costs aren't really so urgent.' Unless there's some specific 'pain' with
pharmacy, they might not pay attention to it."

But
they should. "They need to understand that medical-care contracts are much
easier to get out of than pharmacy," he says. With PBM contracts generally
running in three-year cycles, HR and benefits leaders might decide to move into
a private healthcare exchange in, say, 2015, yet be locked into a PBM contract
for longer than that if they haven't done their homework and forward
calculations.

"You
would have significant issues moving to a private exchange if you're going to
still be locked into a PBM contract," he says. "You would be limited
in what you want to do [to keep a lid on costs] in terms of ACA."

More
importantly, though he agrees with Burns that there's some significant money to
be saved in today's price-competitive PBM market (in fact, Buck's 2013Prescription Drug
Benefit Survey
shows 61 percent of employers now use PBMs compared to 57 percent in 2011 and
47 percent in 2009, with the majority, 68 percent, citing pricing
competitiveness as an extremely important PBM service), Dross thinks an equally
-- if not more important -- point of negotiation should be around the language
and terms of the contract.

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For
instance, in most Mercer PBM contracts, he says, consultants have helped
clients get their PBMs to agree to what they call an "annual market check."
Though their agreed-upon terms are for three years, the market-check clause
allows them to tweak the contract terms that aren't keeping up with market
trends at the end of each year.

Mercer
also gets its PBMs to agree, for the most part, to a 90-day
termination-without-cause clause stating that, if the client provides a 90-day
notice for getting out of the contract, "they will generally agree to it,"
Dross says.

His
most potent advice to the companies he serves is this: " 'Does your
contract allow you the flexibility to do what you want to do in terms of
strategies for handling healthcare reform?' "

He
also advises employers "do a checkup" on whatever
utilization-management program they're using and whether they're getting their
money out of it. (Generally, many of his clients are discovering they're not,
he says.)

In
addition, he suggests everyone prepare for significant price increases in the
near future for specialty biotech medications. Right now, says Dross, such
medications account for about 15 percent of total pharmacy spend, but that
number could be going to 40 percent and even 50 percent of pharmacy cost with
fewer and fewer big-name drugs going generic. That movement -- brand-name to
generic -- has, he suggests, "reached its saturation point" and the
specialty drugs -- such as for rheumatoid arthritis and hepatitis C -- are
going to "skyrocket in price."

What's
more, adds Burns, "when you look at these contracts' terms and language
[around generics], what appears to be a good deal may not be a good deal."
For instance, you might be following "a benchmarked best practice for
generics," he says, "but if your definition of generics is different
from the PBM's definition of generics, then your numbers will be different from
what you're seeing as benchmarked."

Buck's
definition, for instance, "is going to be very specific [whereas] a PBM's
is going to be more broad and might include some brands," says Burns.

"You
need to be prepared for these numbers differentials," he says, "and
[feed what you find into] the little gamesmanship you'll need when you're
negotiating your contract."